“On the 18th of November, 1964, the FBI’s appallingly corrupt boss J. Edgar Hoover denounced Martin Luther King Jr. as “the most notorious liar in the country.” A few days later, a Hoover deputy named William Sullivan wrote King a letter posing as a disillusioned follower and using powerful, manipulative language to urge the civil rights leader to commit suicide before evidence of his extramarital affair became public. Enclosed was an FBI recording containing evidence of the affair.

Whenever America celebrates Martin Luther King Jr. Day we should remind ourselves that it is a known, undisputed fact that the Federal Bureau of Investigation engineered a psyop to manipulate one of the world’s greatest minds into committing suicide. It is also worth reviewing the compelling argument for the case that the FBI was behind King’s assassination as well.”

]]>assetlawThe ‘Gilets Jaunes’ Are Unstoppable: “Now, The Elites Are Afraid”https://jrichardduke.com/2019/01/21/the-gilets-jaunes-are-unstoppable-now-the-elites-are-afraid/
Mon, 21 Jan 2019 20:13:39 +0000http://jrichardduke.com/?p=37876[THE BELOW IS ONLY PART OF THE ARTICLE]

“The gilets jaunes (yellow vest) movement has rattled the French establishment. For several months, crowds ranging from tens of thousands to hundreds of thousands have been taking to the streets every weekend across the whole of France. They have had enormous success, extracting major concessions from the government. They continue to march.

Guilluy: Not only does peripheral France fare badly in the modern economy, it is also culturally misunderstood by the elite. The yellow-vest movement is a truly 21st-century movement in that it is cultural as well as political. Cultural validation is extremely important in our era.

One illustration of this cultural divide is that most modern, progressive social movements and protests are quickly endorsed by celebrities, actors, the media and the intellectuals. But none of them approve of the gilets jaunes. Their emergence has caused a kind of psychological shock to the cultural establishment. It is exactly the same shock that the British elites experienced with the Brexit vote and that they are still experiencing now, three years later.

Guilluy: We have a new bourgeoisie, but because they are very cool and progressive, it creates the impression that there is no class conflict anymore. It is really difficult to oppose the hipsters when they say they care about the poor and about minorities.

But actually, they are very much complicit in relegating the working classes to the sidelines. Not only do they benefit enormously from the globalised economy, but they have also produced a dominant cultural discourse which ostracises working-class people. Think of the ‘deplorables’ evoked by Hillary Clinton. There is a similar view of the working class in France and Britain. They are looked upon as if they are some kind of Amazonian tribe. The problem for the elites is that it is a very big tribe.

spiked: How can we begin to address these demands?

Guilluy: First of all, the bourgeoisie needs a cultural revolution, particularly in universities and in the media. They need to stop insulting the working class, to stop thinking of all the gilets jaunes as imbeciles.”

]]>assetlawNew Guidance Allows Government to Conceal Defense Spending from Publichttps://jrichardduke.com/2019/01/21/new-guidance-allows-government-to-conceal-defense-spending-from-public/
Mon, 21 Jan 2019 18:37:05 +0000http://jrichardduke.com/?p=37874“Thanks to new guidance from the Federal Accounting Standards Advisory Board, government agencies will now be allowed to modify public financial statements, making it possible to distort or even conceal financial records and avoid public scrutiny over specific budget items.”

]]>assetlawThe Generation that Will Save the Worldhttps://jrichardduke.com/2019/01/21/the-generation-that-will-save-the-world/
Mon, 21 Jan 2019 14:56:15 +0000http://jrichardduke.com/2019/01/21/the-generation-that-will-save-the-world/“Eighty-four percent of millennials admit that they don’t know how to change a lightbulb. When asked what they do if one goes out, most either said that they call the landlord to fix it, or just accept having less light in future.

With notable exceptions, it’s a generation of people who blindly expect that their parents, the government and perhaps the tooth fairy, have the full responsibility to take away all of their problems and inconveniences. This has reached the perverse degree that students at even the best universities have “safe spaces,” where no one may say anything that upsets them. Harvard now has rooms where students who are feeling stressed can play with Play-doh. Rules are established based not upon what is practical or workable, but on ‘How I feel at the moment.’”

]]>assetlawThe Decline of the Scholar and the Decline of Academiahttps://jrichardduke.com/2019/01/21/the-decline-of-the-scholar-and-the-decline-of-academia/
Mon, 21 Jan 2019 14:32:45 +0000http://jrichardduke.com/2019/01/21/the-decline-of-the-scholar-and-the-decline-of-academia/“The academic scholar, along with the great teacher, is vanishing from the faculties of the universities. Specialists occupy the places that they leave. The first victims of this process are the students. When the professorial specialists hold a lecture, they have little else to teach that goes beyond their tiny field of expertise. About the areas other than the field of specialization, the one-dimensional expert is as ignorant as the students. When the experts teach their specialization, the content is too advanced for the students to understand and should the experts go into the wider area of the discipline, their discourse becomes amateurish. The decline of wisdom in academia that has happened over the past decades results from this change.”

——-

Chapter 13 of The Ethics of Money Production

The Cultural and SpiritualLegacy of Fiat Inflation1. INFLATION HABITSThe notion that inflation is harmful is a staple of economic science. But most textbooks underrate the extent of the harm, because they define inflation much too narrowly as a lasting decrease of the purchasing power of money (PPM), and also because they pay scant attention to the concrete forms of inflation. To appreciate the disruptive nature of inflation in its full extent we must keep in mind that it springs from a violation of the fundamental rules of society. Inflationis what happens when people increase the money supply byfraud, imposition, and breach of contract. Invariably it produces three characteristic consequences: (1) it benefits the perpetrators at the expense of all other money users; (2) it allowsthe accumulation of debt beyond the level debts could reach on the free market; and (3) it reduces the PPM below the levelit would have reached on the free market.While these three consequences are bad enough, things getmuch worse once inflation is encouraged and promoted bythe state. The government’s fiat makes inflation perennial,and as a result we observe the formation of inflation-specificinstitutions and habits. Thus fiat inflation leaves a characteristic cultural and spiritual stain on human society. In the present chapter, we will take a closer look at some aspects of this legacy.

2. HYPER-CENTRALIZED GOVERNMENT

Inflation benefits the government that controls it, not onlyat the expense of the population at large, but also at theexpense of all secondary and tertiary governments. It is a well known fact that the European kings, during the rise of theirnation states in the seventeenth and eighteenth centuries,crushed the major vestiges of intermediate power. The democratic nation states of the nineteenth and twentieth centuriescompleted the centralization of power that had been begununder the kings.1 The economic driving force of this processwas inflation, which at that point was entirely in the hands ofthe central state apparatus. More than any other economic reason, it made the nation state irresistible. And thus it contributed, indirectly at least, to the popularity of nationalistic ideologies, which in the twentieth century ushered in a frenetic worshipping of the nation-state.Inflation spurs the growth ofcentral governments. Itallows these governments to grow larger than they couldbecome in a free society. And it allows them to monopolizegovernmental functions to an extent that would not occurunder a natural production of money. This comes at theexpense of all forms of intermediate government, and ofcourse at the expense of civil society at large. The inflation sponsored centralization of powerturns the average citizenmore and more into an isolated social atom. All of his socialbonds are controlled by the central state, which also providesmost of the services that formerly were provided by othersocial entities such as family and local government. At thesame time, the central direction of the state apparatus isremoved from the daily life of its wards.It is difficult to reconcile these trends with the goal of awell-ordered society. In the nineteenth century, the Frenchsociologist Frédéric LePlay, an astute and critical observer of

the centralization of state power, established the moral principle of subsidiarity, according to which any problem should besolved by the—in political terms—lowest-ranking person ororganization that is able to solve it.2 Leo XIII then canonizedthis principle, in a manner of speaking, in Rerum Novarum(§§13, 35), without calling it by its name. Only in 1931, PopePius XI adopted the expression “subsidiarity,” in his encyclicalQuadragesimo Anno. But moral precepts will not stop a trendthat springs from such powerful sources. The evil has to beattacked at the root.3. FIAT INFLATION AND WARAmong the most gruesome consequences of fiat money,and of paper money in particular, is its ability to extend thelength of wars. The destructions of war have the healthy effectof cooling down initial war frenzies. The more protracted anddestructive a war becomes, therefore, the less is the population inclined to support it financially through taxes and thepurchase of public bonds. Fiat inflation allows the government to ignore the fiscal resistance of its citizens and to maintain the war effort on its present level, or even to increase that level. The government just prints the notes it needs to buycannons and boots.3

This is exactly what happened in the two world wars of thetwentieth century, at least in the case of the European states.The governments of France, Germany, Italy, Russia, and theUnited Kingdom covered a large part of their expensesthrough inflation. It is of course difficult to evaluate any precise quantitative impact, but it is not unreasonable to assumethat fiat inflation prolonged both wars by many months oreven one or two years. If we consider that thekillings reachedtheir climax toward the end of the war, we must assume thatmany millions of lives could have been saved.Many people believe that, in war, all means are just. Intheir eyes, fiat inflation is legitimate as a means to fend offlethal threats to a nation. But this argument is rather defective.It is not the case that all means are just in a war. There is inCatholic theology a theory of just war, which stresses exactlythis point. Fiat inflation would certainly be illegitimate if lessoffensive means were available to attain the same end. Andfact is that such means exist and have always been at the disposition of governments, for example, credit money and additional taxation.Another typical line of defense of fiat money in wartimesis that the government might know better than the citizensjust how near victory is at hand. The ignorant populationgrows weary of the war and tends to resist additional taxation.But the government is perfectly acquainted with the situation.Without fiat money, its hands would be tied, with potentiallydisastrous consequences. The inflation just gives it the littleextra something needed to win.It is of course conceivable that the government is betterinformed than its citizens. But it is difficult to see why thisshould be an obstacle in war finance. The most essential task ofpolitical leadership is to rally the masses behind its cause. Whyshould it be impossible for a government to spread its betterinformation, thus convincing the populace of the need foradditional taxes? This brings us to the following consideration.

4. INFLATION AND TYRANNYWar is only the most extreme case in which fiat inflationallows governments to pursue their goals without genuinesupport from their citizens. The printing press allows thegovernment to tap the property of its people without havingobtained their consent, and in fact against their wishes. Whatkind of government is it that arbitrarily takes the property ofits citizens? Aristotle and many other political philosophershave called it tyranny. And monetary theorists from Oresmeto Mises have pointed out that fiat inflation, considered as atool of government finance, is the financial technique characteristic of tyranny.5. RACE TO THE BOTTOM INMONETARY ORGANIZATIONAs we have seen in some detail, fiat inflation is an inherently unstable way of producing money because it turnsmoral hazard and irresponsibility into an institution. Theresults are frequently recurring economic crises. Past efforts torepair these unwelcome effects, yet without questioning theprinciple of fiat inflation per se, have entailed a peculiar evolution of monetary institutions—a kind of institutional “raceto the bottom.” This does not of course imply a quick process.The devolution of monetary institutions has been underwayfor centuries, and it has still not quite reached the absolutebottom, even though the process has accelerated considerablyin our age of paper money. We have dealt with this phenomenon already at some length and will present it in greater historical context in Part Three.6. BUSINESS UNDER FIAT INFLATIONFiat inflation has a profound impact oncorporate finance.It makes liabilities (credit) cheaper than they would be on afree market. This prompts entrepreneurs to finance their ventures to a greater extent than otherwise through credit, ratherthan through equity (the capital brought into the firm by itsowners).

In a natural system of money production, banks wouldgrant credit only as financial intermediaries. That is, theycould lend out only those sums of money that they had eithersaved themselves or which other people had saved and thenlent to the banks. The bankers would of course be free to grantcredit under any terms (interest, securities, duration) they like;but it would be suicidal for them to offer better terms thanthose that their own creditors had granted them. For example,if a bank receives a credit at 5 percent, it would be suicidal forit to lend this money at 4 percent. It follows that on a free market, profitable banking is constrained within fairly narrowlimits, which in turn are determined by the savers. It is notpossible for a bank to stay in business and to offer better termsthan the savers who are most ready to part with their moneyfor some time.But fractional–reservebanks can do precisely that. Sincethey can produce additional bank credit at virtually zero cost,they can grant credit at rates that are lower than the rates thatwould otherwise have prevailed. And the beneficiaries willtherefore finance some ventures through debts that theywould otherwise have financed with their own money, orwhich they would not have started at all. Paper money hasvery much the same effect, but in a far greater magnitude. Apaper-money producer can grant credit to virtually any extentand on virtually any terms. In the past few years, the Bank ofJapan has offered credit at zero percent interest, and then proceeded in some cases to actually pay people for borrowing its credit.

It is obvious that few firms can afford to resist such offers.Competition is fierce in most industries, and the firms mustseek to use the best terms available, lest they lose that “competitive edge” that can be decisive for profits and also for mere survival. It follows that fiat inflation makes business more dependent on banks than they otherwise would be. It createsgreater hierarchy and central decision-making power thanwould exist on the free market. The entrepreneur who operates with 10 percent equity and 90 percent debt is not really anentrepreneur anymore. His creditors (usually bankers) are the

true entrepreneurs who make all essential decisions. He is justa more or less well-paid executive—a manager.Thus fiat inflation reduces the number oftrue entrepreneurs—independent men who operate with their own money.Such men still exist in astonishing numbers, but they can onlysurvive because their superior talents match the inferior financial terms with which they have to cope. They must be moreinnovative and work harder than their competitors. Theyknow the price of independence and they are ready to pay it.Usually they are more attached to the family business and caremore for their employees than the puppets of bankers.Because credit springing from fiat inflation provides aneasy financial edge, they have the tendency to encourage reckless behavior of the chief executives.4 This is especially thecase with managers of large corporations who have easy accessto the capital markets. Their recklessness is often confused withinnovativeness. Indeed, the economist Joseph Schumpeter hasfamously characterized fractional-reserve banks as being somesort of mainspring of economic development.5 He argued thatsuch banks may use their ability to create credit out of thin air(ex nihilo) to provide funding for innovative entrepreneurs. It isconceivable that in some cases they played this role, but theodds are overwhelmingly on the other side. As a general rule,any new product and any thoroughgoing innovation in business organization is a threat for banks, because they arealready more or less heavily invested in established companies, which produce the old products and use the old forms of

organization. They have therefore every incentive to either prevent the innovation by declining to finance it, or to communicate the new ideas to their existing partners in the business world. Thus, fractional–reserve banking makes business more conservative than it otherwise would be. It benefits the established firms at the expense of innovative newcomers. Innovation is much more likely to come from independent businessmen, especially if income taxation is low.7. THE DEBT YOKESome of the foregoing considerations also apply outside ofthe business world. Fiat inflation provides easy credit not onlyto governments and firms, but also to private persons. Themere fact that such credit is offered at all incites some peopleto go into debtwho would otherwise have chosen not to doso. But easy credit becomes nearly irresistible in connectionwith another typical consequence of inflation, namely, theconstantly rising price level. Whereas in former times theincrease of prices has been barely noticeable, in our day all citizens of the western world perceive the phenomenon. In countries such as Turkey or Brazil, where prices have increaseduntil recently at annual rates of 80 to 100 percent, even youngerpeople have personally experienced it.Such conditions impose a heavy penalty on cash savings.In the old days, saving was typically done in the form ofhoarding gold and silver coins. It is true that such hoards didnot provide any return—the metal was “barren”—and thatthey therefore did not lend themselves to the lifestyle of rentiers. But in all other respects money hoards were a reliableand effective form of saving. Their purchasing power did notjust evaporate in a few decades, and in times of economicgrowth they even gained some purchasing power. Mostimportantly, they were extremely suitable for ordinary people.Carpenters, masons, tailors, and farmers are usually not veryastute observers of the international capital markets. Puttingsome gold coins under their mattress or into a safe deposit boxsaved them many sleepless nights, and it made them independent of financial intermediaries.

Now compare this old-time scenario with our present situation. The contrast could not be starker. It would be completely pointless in our day to hoard dollar or euro notes to prepare for retirement. A man in his thirties who plans toretire thirty years from today (2008) must calculate with adepreciation factor in the order of 3. That is, he needs to savethree dollars today to have the purchasing power of one ofthese present-day dollars when he retires. And the estimateddepreciation factor of 3 is rather on the low side! It followsthat the rational saving strategy for him is to go into debt inorder to buy assets the price of which will increase with theinflation. This is exactly what happens today in most westerncountries. As soon as young people have a job and thus ahalfway stable source of revenue, they take a mortgage to buya house—whereas their great-grandfather might still havefirst accumulated savings for some thirty years and thenbought his house with cash.Things are not much better for those who have alreadyaccumulated some wealth. It is true that inflation does notforce them into debt, but in any case it deprives them of thepossibility of holding their savings in cash. Old people with apension fund, widows, and the guardians of orphans mustinvest their money into the financial markets, lest its purchasing power evaporate under their noses. Thus they becomedependent on intermediaries and on the vagaries of stock andbond pricing.It is clear that this state of affairs is very beneficial for thosewho derive their living from the financial markets. Stockbrokers, bond dealers, banks, mortgage corporations, and other“players” have reason to be thankful for the constant declineof money’s purchasing power under fiat inflation. But is thisstate of affairs also beneficial for the average citizen? In a certain sense, his debts and increased investment in the financialmarkets is beneficial for him, given our present inflationaryregime. When the increase of the price level is perennial, personal debt is for him the best available strategy. But this meansof course that without government intervention into the monetary system other strategies would be superior. The presenceof central banks and paper money make debt-based financial

strategies more attractive than strategies based on prior savings. In the words of Dempsey, we might say that “we havethe effect of usury without the personal fault” of the financialagents. “The usury is institutionalized, or systemic.”6It is not an exaggeration to say that, through their monetary policy, Western governments have pushed their citizensinto a state of financial dependency unknown to any previousgeneration. Already in 1931, Pius XI stated:. . . it is obvious that not only is wealth concentrated in ourtimes but an immense power and despotic economic dictatorshipis consolidated in the hands of a few, who often are not owners but only the trustees and managing directors of invested funds which they administer according to theirown arbitrary will and pleasure.This dictatorship is being most forcibly exercised by thosewho, since they hold the money and completely control it,control credit also and rule the lending of money. Hencethey regulate the flow, so to speak, of the life-blood wherebythe entire economic system lives, and have so firmly in theirgrasp the soul, as it were, of economic life that no one canbreathe against their will.7One wonders which vocabulary Pius XI would have usedto describe our present situation. The usual justification forthis state of affairs is that it allegedly stimulates industrialdevelopment. The money hoards of former times were notonly sterile; they were actually harmful from an economicpoint of view, because they deprived business of the means of

payments they needed for investments. The role of inflation isto provide these means.We have already exploded this myth in some detail. Atthis point, let us merely emphasize again that money hoarding does not have any negative macroeconomic implications.It definitely does not stifle industrial investments. Hoardingincreases the purchasing power of money and thus givesgreater “weight” to the money units that remain in circulation.All goods and services can be bought, and all feasible investments can be made with these remaining units. The fundamental fact is that inflation does not bring into existence any additional resource. It merely changes the allocation of theexisting resources. They no longer go to companies that arerun by entrepreneurs who operate with their own money, butto business executives who run companies financed withcredit.The net effect of the recent surge in household debt istherefore to throw entire populations into financial dependency. The moral implications are clear. Towering debts areincompatible with financial self-reliance and thus they tend toweaken self-reliance also in all other spheres. The debt-riddenindividual eventually adopts the habit of turning to others forhelp, rather than maturing into an economic and moralanchor of his family, and of his wider community. Wishfulthinking and submissiveness replace soberness and independent judgment. And what about the many cases in whichfamilies can no longer shoulder the debt load? Then the resultis either despair or, alternatively, scorn for all standards offinancial sanity.8. SOME SPIRITUAL CASUALTIES OF FIAT INFLATIONFiat inflation constantly reduces the purchasing power ofmoney. To some extent, it is possible for people to protect theirsavings against this trend, but this requires thorough financialknowledge, the time to constantly supervise one’s investments, and a good dose of luck. People who lack one of theseingredients are likely to lose a substantial part of their assets.The savings of a lifetime often vanish into thin air during thelast few years spent in retirement. The consequence is despair

and the eradication of moral and social standards. But itwould be wrong to infer that inflation produces this effectmainly among the elderly. As one writer observed:These effects are “especially strong among the youth. Theylearn to live in the present and scorn those who try to teachthem ‘old-fashioned’ morality and thrift” [emphasis added].Inflation thereby encourages a mentality of immediate gratification that is plainly at variance with the discipline andeternal perspective required to exercise principles of biblicalstewardship—such as long-term investment for the benefitof future generations.8

Even those citizens who are blessed with the knowledge,time, and luck to protect the substance of their savings cannotevade inflation’s harmful impact, because they have to adopthabits that are at odds with moral and spiritual health. Inflation forces them to spend much more time thinking abouttheir money than they otherwise would. We have noticedalready that the old way for ordinary citizens to make savingswas the accumulation of cash. Under fiat inflation this strategy is suicidal. They must invest in assets the value of whichgrows during the inflation; the most practical way to do this isto buy stocks and bonds. But this entails many hours spent oncomparing and selecting appropriate issues. And it compelsthem to be ever watchful and concerned about their money forthe rest of their lives. They need to follow the financial newsand monitor the price quotations on the financial markets.Similarly, people will tend to prolong the phase of their lifein which they strive to earn money. And they will place relatively greater emphasis on monetary returns than on anyother criterion for choosing their profession. For example,some of those who would rather be inclined to gardening will

nevertheless seek an industrial employment if the latter offersgreater long-run monetary returns. And more people willaccept employment far from home, if it allows them to earn alittle additional money, than under a natural monetary system.The spiritual dimension of these inflation-induced habitsseems obvious. Money and financial questions come to playan exaggerated role in the life of man. Inflation makes societymaterialistic. More and more people strive for money incomeat the expense of other things important for personal happiness. Inflation-induced geographical mobility artificiallyweakens family bonds and patriotic loyalty. Many of thosewho tend to be greedy, envious, and niggardly anyway fallprey to sin. Even those who are not so inclined by their natureswill be exposed to temptations they would not otherwise havefelt. And because the vagaries of the financial markets also provide a ready excuse for an excessively parsimonious use ofone’s money, donations for charitable institutions decline.Then there is the fact that perennial inflation tends to deteriorate product quality. Every seller knows that it is difficult tosell the same physical product at higher prices than in previous years. But increasing money prices are unavoidable whenthe money supply is subject to relentless growth. So what dosellers do? In many cases the rescue comes through technological innovation, which allows a cheaper production of theproduct, thus neutralizing or even overcompensating thecountervailing influence of inflation. This is for example thecase with personal computers and other products made withlarge inputs of information technology. But in other industries, technological progress plays a much smaller role. Herethe sellers confront the above-mentioned problem. They thenfabricate an inferior product and sell it under the same name,along with the euphemisms that have become customary incommercial marketing. For example, they might offer theircustomers “light” coffee and “non-spicy” vegetables—whichtranslates into thin coffee and vegetables that have lost anytrace of flavor. Similar product deterioration can be observedin the construction business. Countries plagued by perennial

inflation seem to have a greater share of houses and streetsthat are in constant need of repair than other countries.In such an environment, people develop a more thansloppy attitude toward their language. If everything iswhatever it is called, then it is difficult to explain the difference between truth and lie. Inflation tempts people to lieabout their products, and perennial inflation encourages thehabit of routine lying. We have already pointed out that routine lying plays a great role in fractional-reserve banking, thebasic institution of the fiat money system. Fiat inflation seemsto spread this habit like a cancer over the rest of the economy.99. SUFFOCATING THE FLAMEIn most countries, the growth of the welfare state has beenfinanced through the accumulation of public debt on a scalethat would have been unthinkable without fiat inflation. Acursory glance at the historical record shows that the exponential growth of the welfare state, which in Europe started inthe early 1970s, went hand in hand with the explosion of public debt. It is widely known that this development has been amajor factor in the decline of the family. But it is commonlyoverlooked that the ultimate cause of this decline is fiatinflation. Perennial inflation slowly but assuredly destroys thefamily, thus suffocating the earthly flame of morals.Indeed, the family is the most important “producer” of acertain type of morals. Family life is possible only if all members endorse norms such as the legitimacy of authority, andthe prohibition of incest. And Christian families are based onadditional precepts such as the heterosexual union betweenman and woman, love of the spouses for one another and fortheir offspring, the respect of children for their parents, as wellas belief in the reality of the Triune God and of the truth of the

Christian faith, etc. Parents constantly repeat, emphasize, andlive these norms and precepts. Thus all family members cometo accept them as the normal state of affairs. In the widersocial sphere, then, these persons act as advocates of the samenorms in business associations, clubs, and politics.Friends and foes of the traditional family agree on thesefacts. It is among other things because they recognize the family’s effectiveness in establishing social norms that Christiansseek to protect it. And it is precisely for the same reason thatadvocates of moral license seek to undermine it. The welfarestate has been their preferred tool in the past thirty years.Today, the welfare state provides a great number of servicesthat in former times have been provided by families (andwhich would, we may assume, still be provided to a largeextent by families if the welfare state ceased to exist). Education of the young, care for the elderly and the sick, assistancein times of emergencies—all of these services are today effectively “outsourced” to the state. The families have beendegraded into small production units that share utility bills,cars, refrigerators, and of course the tax bill. The tax-financedwelfare state then provides them with education and care.10From an economic point of view, this arrangement is apure waste of money. The fact is that the welfare state is inefficient; it provides comparatively lousy services at comparatively high costs. We need not dwell on the inability of government welfare agencies to provide the emotional andspiritual assistance that only springs from charity. Compassion cannot be bought. But the welfare state is also inefficientin purely economic terms. It operates through large bureaucracies and is therefore liable to lack incentives and economic

criteria that would prevent wasting money. In the words ofPope John Paul II:By intervening directly and depriving society of its responsibility, the Social Assistance State leads to a loss of humanenergies and an inordinate increase of public agencies,which are dominated more by bureaucratic ways of thinkingthan by concern for serving their clients, and which are accompanied by an enormous increase in spending. In fact, it wouldappear that needs are best understood and satisfied by peoplewho are closest to them and who act as neighbors to those inneed. It should be added that certain kinds of demands oftencall for a response which is not simply material but which iscapable of perceiving the deeper human need.11Everyone knows this from first-hand experience, and agreat number of scientific studies drive home the same point.It is precisely because the welfare state is an inefficient economic arrangement that it must rely on taxes. If it had to compete with families on equal terms, it could not stay in businessfor any length of time. It has driven the family and privatecharities out of the “welfare market” because people are forcedto pay for it anyway. They are forced to pay taxes, and theycannot prevent the government from floating ever-new loans,which absorb the capital that otherwise would be used for theproduction of different goods and services.The excessive welfare state of our day is an all-out directattack on the producers of morals. But it weakens these moralsalso in indirect ways, most notably by subsidizing bad moralexamples. The fact is that libertine “lifestyles” carry great economic risks. The welfare state socializes the costs of morallyreckless behavior and therefore gives it far greater prominencethan it would have in a free society. Rather than carrying aneconomic penalty, licentiousness might then actually go handin hand with economic advantages, because it frees the protagonists from the costs of family life (for example, the costsassociated with raising children). With the backing of the welfare state, these protagonists may mock conservative morals

as some sort of superstition that has no real-life impact. Thewelfare state systematically exposes people to the temptationof believing that there are no time-tested moral precepts at all.Let us emphasize that the point of the preceding observations was not to attack welfare services, which are in fact anessential component of society. Neither is it here our intentionto attack the notion that welfare services should be providedthrough government. The point is, rather, that fiat inflationdestroys the democratic control over the provision of theseservices; that this invariably leads to excessive growth of theaggregate welfare system and to excessive forms of welfare;and that this in turn is not without consequences for the moraland spiritual character of the population.The considerations presented in this chapter are by nomeans an exhaustive account of the cultural and spirituallegacy of fiat inflation. But they should suffice to substantiatethe main point: that fiat inflation is a juggernaut of social, economic, cultural, and spiritual destruction.12 Let us now turn tocomplement our analysis with a look at the historical evolution of monetary systems

2On LePlay see Charles Gide and Charles Rist, Histoire des doctrineséconomiques, 6th ed. (Paris: Dalloz, 2000), bk. 5, chap. 2, pp. 582–90. Onthe principle of subsidiarity in Catholic social doctrine, see PontificalCouncil for Justice and Peace, Compendium of the Social Doctrine of theChurch, §185–88.3According to Kant, world peace presupposed that public debt not beused to finance war since this would unduly facilitate the waging ofwar. See Immanuel Kant, “Zum Ewigen Frieden—ein philosophischerEntwurf,” Werkausgabe 11 (Frankfurt: Suhrkamp, 1991), pp. 198–99.However, the prohibition of a particular use of public debt is unlikely tobe effective in practice because it is impossible to tie up a particular typeof revenue with a particular type of expenditure. (The government canalways claim that it pays for military expenditure with revenue fromtaxes, whereas the public debt is used for non-military purposes.) It istherefore more effective to attack the problem at its root and to abolish the legal dispositions that impose fractional-reserve banking and papermoney. The reduction of the public debt would be a logical consequence.

4The intimate connection between such recklessness and the prevailingmonetary system is usually overlooked, even in penetrating studies ofthe subject. See for example A. de Salins and F. Villeroy de Galhau, Ledéveloppement moderne des activités financiers au regard des exigencieséthiques du Christianisme (Vatican: Libreria Editrice Vaticana, 1994), inparticular pp. 23–34 where the authors discuss the impact of the “financial sphere” on the economy without even mentioning the problems ofmoral hazard and of the lender-of-last-resort concept.5See Joseph A. Schumpeter, Theorie der wirtschaftlichen Entwicklung, 4thed. (Berlin: Duncker & Humblot, [1934] 1993), chap. 3.

8Thomas Woods, “Money and Morality: The Christian Moral Traditionand the Best Monetary Regime,” Religion & Liberty 13, no. 5 (September/October 2003). The author quotes Ludwig von Mises. See alsoWilliam Gouge, A Short History of Paper Money and Banking in the UnitedStates, to which is prefixed an Inquiry into the Principles of the System(Reprint, New York: Augustus M. Kelley, [1833] 1968), pp. 94–101.

9The relationship between fiat inflation on the one hand, and misperceptions and misrepresentations of reality on the other hand has beenbrilliantly discussed in Paul Cantor’s case study on “Hyperinflation andHyperreality: Thomas Mann in Light of Austrian Economics,” Review ofAustrian Economics 7, no. 1 (1994).

10In many countries it is today possible for families to deduct expensesfor private care and private education from the annual tax bill. But ironically (or maybe not quite so ironically) this trend has reinforced the erosion of the family. For example, recent provisions of the U.S. tax codeallow family budgets to increase through such deductions—but only ifthe deductible services are not provided by family members, but boughtfrom other people,

11John Paul II, Centesimus Annus, §48.

12Our study seems to suggest that there is definitely something diabolical in fiat inflation. But we feel incompetent to deal with this questionand leave its analysis for another time, or for other scholars. It is certainly significant that a great poet such as Goethe would portray papermoney as a creation of the devil. See Faust, part II, Lustgartenszene.

Micah 6: 10-16

10 Are there yet the treasures of wickedness in the house of the wicked, and the scant measure that is abominable?

11 Shall I count them pure with the wicked balances, and with the bag of deceitful weights? [modern day fiat currency and fiat fractional reserve credit]

12 For the rich men thereof are full of violence,and the inhabitants thereof have spoken lies, and their tongue is deceitful in their mouth.

13 Therefore also will I make thee sick in smiting thee, in making thee desolate because of thy sins.

14 Thou shalt eat, but not be satisfied; and thy casting down shall be in the midst of thee; and thou shalt take hold, but shalt not deliver; and that which thou deliverest will I give up to the sword.

15 Thou shalt sow, but thou shalt not reap; thou shalt tread the olives, but thou shalt not anoint thee with oil; and sweet wine, but shalt not drink wine.

16 For the statutes of Omri are kept, and all the works of the house of Ahab, and ye walk in their counsels; that I should make thee a desolation, and the inhabitants thereof an hissing: therefore ye shall bear the reproach of my people.

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Proverbs 20:10

10 Divers [different] weights, and divers measures, both of them are alike abomination to the Lord.

Leviticus 19:35-37

35 ‘You shall do no wrong in judgment, in measurement of weight, or capacity.

36 You shall have just balances, just weights, a just ephah, and a just hin; I am the Lord your God, who brought you out from the land of Egypt.

37 You shall thus observe all My statutes and all My ordinances and do them; I am the Lord.’”

Why You Should Read Mark Thornton’s The Skyscraper Curse

Thornton begins with an important discussion of money creation and Richard Cantillon, writing: “… Richard Cantillon (1680s-1734?) [was] the first economic theorist and proto-Austrian economist …[he] showed how the interest rate and the money supply can create changes and distortions in the economy, a phenomenon now referred to as “Cantillon effects.”

Monetary inflation is affected by who gets the money and credit first and who gets it last. As fiat money is created by central banks, private banks are in a position to expand the amount of loans they make. The wealthy have established relationships with the banks, and they have the real estate and assets to provide collateral for the loans. Large, established companies and wealthy individuals are in favorable positions relative to small businesses and people with low or average incomes. The loans allow big companies and wealthy individuals to invest in capital goods during the boom phase of the business cycle. Central banks thereby create artificial inequality and poverty. This is the primary Cantillon effect of redistributing wealth.”